Chapter 5: Dynamic Responses to Disruptive Business Model Innovations: Rational, Behavioral, and Normative Perspectives

How should incumbent firms respond to disruptive business model innovations introduced in their industries by innovative startups, newcomers from adjacent industries, or entrepreneurial established players? Despite much discussion, the current literature provides no clear-cut answer. One view suggests establishing autonomous business units to explore disruptive business model innovations; the other approach implies ambidextrous integration of two business models in the same firm, or even ignoring the disruptive innovation to concentrate on the core business model. In this chapter, we integrate existing views in a deductively developed model of response to disruptive business model innovations in their industries, manifested in a holistic typology of response strategies. On its basis, we propose a dynamic behavioral model of incumbent firms’ responses to disruptive business model innovations, describing observed behavioral patterns in disrupted industries and explaining actions and reasons why these actions might deviate from the rational path. Then, we propose a rational response model, comprising a set of testable propositions regarding the contingency factors determining optimal incumbent actions when facing a disruptive business model innovation. Finally, we supplement the insights of rational and behavioral models with the real options lens to formulate a set of normative recommendations for managers of established real-world firms having to make decisions regarding nascent or gaining momentum disruptive business models in their industries.